We audited Laurentian Hall Apartments (project) because of its failure to submit financial statements in a timely manner and because we had never audited the project before. Our audit objective was to determine whether the project’s owner managed the project in accordance with its U.S. Department of Housing and Urban Development (HUD)-held mortgage and other HUD requirements.
The owner of Laurentian Hall Apartments did not always manage its multifamily project in accordance with HUD requirements. Specifically, the owner (1) did not submit financial statements and mortgage payments as required, (2) improperly leased commercial space without HUD’s consent to a related party at below market rent, (3) disbursed funds for building improvements without HUD’s approval, (4) did not properly procure products and services, (5) created a lien on the property in violation of its mortgage terms, and (6) incurred costs that were not eligible for the project’s operations. As a result, the project was in default of its HUD-held mortgage and it incurred more than $71,000 in unsupported costs from unapproved building improvements and improper procurement of products and services, and nearly $9,000 in ineligible expenditures. The project also lost the opportunity to increase surplus cash available to pay its mortgage by $282,578 because it didn’t collect fair market rent on its commercial space, and it exposed project assets to risk from creditor claims of up to $25,000.
We recommend that HUD require the owner to (1) pay the project $282,578 from non-project funds for the commercial rent not collected because the lease charged less than fair market rent, and (2) request approval from HUD to lease the commercial space and if HUD approves the request, then execute a lease at fair market rent. We also recommend that the Director of HUD’s Asset Management Division, Baltimore Multifamily Hub (1) recalculate the project’s annual surplus cash balances to determine whether the project should make additional payments from surplus cash toward its mortgage beyond the $13,740 that it paid during the audit, and (2) provide training and technical assistance to the owner and its management agent to ensure compliance with the terms of its mortgage and other applicable HUD requirements.
Recommendations
Housing
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Status2017-PH-1002-001-AOpenClosed$282,578.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Closed on January 29, 2020Pay the project $282,578 from non-project funds for the fair value of the commercial rent not collected from the lessees.
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Status2017-PH-1002-001-BOpenClosed$36,858.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Closed on June 09, 2020Request approval from HUD to lease the commercial space. If HUD approves the request, then execute a lease at fair market rent thereby increasing the project’s rent revenue by at least $36,858 per year.
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Status2017-PH-1002-001-COpenClosed$31,769.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on January 31, 2020Request approval from HUD for the $31,769 in project operating funds spent on building improvements or repay the project from nonproject funds for any amount not approved.
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Status2017-PH-1002-001-DOpenClosed$39,920.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on January 31, 2020Provide documentation to show that the $39,920 paid to replace an air conditioning system was fair and reasonable or repay the project from nonproject funds any amount determined not to be fair and reasonable (excluding any amount repaid as a result of recommendation 1C).
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Status2017-PH-1002-001-EOpenClosed$25,000.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Closed on January 24, 2020Remove the $25,000 lien on the project property.
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Status2017-PH-1002-001-FOpenClosed$8,597.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on November 04, 2019Repay the project $8,597 from nonproject funds for the ineligible expenses it incurred for management fee and gas utility expenses that were identified by the audit and any additional management fee and gas utility expenses improperly paid outside of our review period.
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Status2017-PH-1002-001-GOpenClosedClosed on December 23, 2019
Develop and implement controls to ensure that financial statements are submitted to HUD in a timely manner, including paying the correct amount of annual payments according to the terms of the mortgage.
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Status2017-PH-1002-001-HOpenClosedClosed on December 19, 2019
Develop and implement controls to ensure that the project complies with applicable HUD requirements.
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Status2017-PH-1002-001-IOpenClosed$13,740.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Closed on February 04, 2020Recalculate the project’s annual surplus cash balances for 2013, 2014, and 2015 after resolution of recommendations 1A, 1C, 1D, and 1F to determine whether the project should make additional payment to HUD from surplus cash toward its mortgage beyond the $13,740 that it paid during the audit.
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Status2017-PH-1002-001-JOpenClosedClosed on December 30, 2019
Provide training and technical assistance to the owner and its management agent to ensure compliance with the terms of its mortgage and other applicable HUD requirements.